The North Korea Missile contract was set to expire at 100 if all of the
following 3 conditions were met:
-North Korea launched a test missile;
-It left North Korean airspace on/before 11:59:59pm ET on 31st July
2006; and
-The above were confirmed by the US Department of Defense.
The last condition indisputably was not met. Despite TEN's repeated
attempts to secure confirmation directly from the DoD, or to source a
public DoD statement that would provide explicit confirmation that the
missiles left NK airspace, no such confirmation was forthcoming.
Further, on the day of expiry, a DoD spokesperson stated directly to
TEN that the DoD would not offer any confirmation related to North
Korean airspace, as such specifics were considered military
intelligence.
Accordingly, the contract was expired at 0.
Let's be clear. This was not the easy or popular decision. This
contract generated discussion wildly out of proportion to its volume,
which was small and which consisted overwhelmingly of trades placed
after the launch.
North Korea obviously tested several missiles. Given reports about how
far the missiles went and where they landed, it certainly could have
been inferred that at some point, some of them left North Korean
airspace. It also was possible to assemble various transcripts,
emails, and statements into a 'straw man' that might somehow have
served as a proxy for confirmation.
The simple fact is that a stated confirmation source is an integral
component of a contract. This fact only hides in plain sight because
many contracts have inherent confirmation mechanisms which are
unanimously accepted without ever being discussed. An example would be
the Nasdaq: the closing print is its own confirmation.
At the other end of the spectrum, consider a seemingly far-fetched
proposition which absolutely would require a specific confirmation
source to have any hope of being a tradeable proposition: a UFO
sighting occuring before the end of the month. The contract value will
depend almost entirely on what will server as the source. Is it the US
government, or a tabloid? MSNBC, or someone's blog?
Most contracts fall somewhere in between these two extremes. Yet
whether or not it's taken for granted, a confirmation source is always
an essential, integral component of a contract.
Real money contracts on real world events are real financial
transactions with real consequences. Stock buyers may lose money. Put
writers may be assigned. Adjustable mortgage holders may face rising
rates and higher monthly payments. If you don't close a long commodity
position before expiry, you may need to decide what, exactly, you're
going to do with 40,000 pounds of frozen pork bellies or 110,000 board
feet of lumber.
Inference and proxy are not a substitute for the terms of a contract,
and to pretend otherwise does a serious disservice to the integrity and
credibility of our marketplace.
Our commitment is to be transparent and responsive, and to lead the
growth of a new market by continuously improving offerings, services,
liquidity, and functionality. This is why we're expanding the
confirmation sources for similar current events contracts, and why
we're creating an arbitration body to give members a mechanism for the
independent review of contract disputes.
This is why discussion, criticism, and hard questions are not only
welcome, but necessary.
This is how businesses are built, and how sustainable industries are
forged.
Matt Bonner
CMO
Trade Exchange Network, Ltd.
